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PayPal Digesting Gains, Still Delivering the Goods

Stock (Symbol)

PayPal Holdings (PYPL)

Stock Price

$81

Sector
Financial
Data is as of
May 19, 2018
Expected to Report
Jul 24
Company Description
PayPal Holdings, Inc. is a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants. The Company’s combined payment solutions, including its PayPal, PayPal Credit, Braintree, Venmo, Xoom and Paydiant products, compose its Payments Platform. It offers consumers person-to-person payment solutions through its PayPal Website and mobile application, Venmo and Xoom. Source: Thomson Financial
Sharek’s Take
David SharekPayPal (PYPL) is digesting its gains made in 2017, and as the stock builds a new base the company continues to deliver the goods. Here’s some last qtr stats:

  • 30% profit growth on a 24% gain in sales.
  • Total Payment Volume (TPV) up 27%.
  • Added 8 million accounts — 35% more than the same qtr last year — and ended the qtr with 237 million users.
  • A transaction take rate of 2.42%. This isn’t bad considering the amount of free transactions Venmo does.

Paypal has three catalysts: 

  1. Venmo is a free digital wallet that lets you make and share payments with friends for free (such as splitting dinner), and move money from Venmo to your bank in one day. Merchants pay 3% if you pay them with a credit card (that’s about what PayPal charges). Venmo payment volume rose 80% last qtr to $12.3 billion, 9% of PYPL’s $132 billion total.
  2. Xoom allows you to transfer money to other countries, and even let’s you ask for money from someone. Xoom is a big help to immigrant workers in the U.S who send money home.
  3. One Touch is what management calls the standard forspeed & simplicity for mobile checkout. TPV was $49 billion last qtr, up 52% yoy, and was 37% of total sales.

PYPL is growing around 30% with a P/E of 35. That’s reasonable. But the stock is in a trading range between $70 and $85 because it was up more than 90% last year and needed time to cool off. But this is a quality company that’s innovative and is in the right areas for growth, and I’m a big believer in the stock long-term. Management also buys back billions in stock. PayPal seems to be setting up for another move higher, and with the NASDAQ looking to break out anytime a move higher for the market could push PYPL up into new high territory faster than I think.

One Year Chart
I like this chart pattern. The only reason I don’t feel PYPL is ready to move up to another level is the P/E of 35. Maybe I’m wrong, and the stock does successfully break out. If it were to earn a P/E of 42 that would put it at $98. Last qtr PYPL delivered 24% sales growth and 30% profit growth which beat estimates of 23%. Profits of 31% beat estimates of 24%. The company has beaten the street by 3 cents in each of the last 5 qtrs. Qtrly profit Estimates are 22%, 17%, 20%. and 16%. If PYPL beats by 3 cents the next 4 qtrs that would mean 28%, 23%, 25% and 21% growth ahead — and I don’t feel that’s a stock worth 42x earnings. The Est. LTG of 19% is good but not great. The P/E was just 31 two qtrs ago.
Fair Value
2018 estimates increased a bit from $2.28 to $2.34. 2019 and 2020 numbers also got a bump. My Fair Value rises from 35x earnings to 37x but the stock could get a P/E of 40 if it goes on a run higher. 40x earnings would be a $94 stock.
Bottom Line
PayPal just finished a parabolic move and is now digesting its gains, which is a healthy sign. I think the main question here isn’t if the stock will hit new highs again but when. If the stock market breaks out and runs higher in the coming weeks — which I feel will happen — the strength in the market could push this stock from $80 to $90. PYPL is ranked 26th in the Growth Portfolio Power Rankings. 
Power Rankings
Growth Stock Portfolio

26 of 39

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

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